What Moves the Forex Market – Part 1 of 2

The best business in the planet is the Forex market because it never sleeps and one will discover that this is a driving force economically because investors will pump money that will be used to trade foreign currencies that are exchanged every day in the currency market. The first factor that moves money in the currency market is the economic data wherein the gross domestic product will influence market conditions and alters the direction of the market. A nation’s currency can be affected by economic factors such as deficits in the budget or an excess of it.

Additionally, inflation may also affect a country’s GDP and can be a factor that may affect foreign currencies trading. It is quite natural that foreign businessmen would want to invest more in a country that has favorable economic conditions that would become more frenetic in its pace as days go by. The positive outlook of the trading system will indicate a country’s gross domestic product is on the upswing which means that there is higher employment and increase in retail sales, so foreign investors would most likely invest all the more to spur more economic growth. For this reason, the currency value of a nation will gradually increase amidst the bullish outlook.

Another factor that will move the Forex market is the interest rates and the bureaucracy will exploit this to control the economy of the country. Foreign investors can be enticed by inflation that was upgraded by higher interest rates while on the other hand; domestic growth will be encouraged by interest rates that are lower. Meanwhile, foreign investors may consider pumping more cash if the central bank of a nation will increase interest rates that would most likely increase the debt of the country itself. Moreover, investors within the country would increasingly resort to trade foreign currencies increasing a country’s debt further and will buoy up the economy.

On the debit side, market conditions will not be rosy if the interest rates are reduced by the central bank. Worse, trading will become less productive because investors may become lukewarm or cautious to do business. The Forex market may illustrate the bearish outlook of domestic investors as well and the nation will suffer because they will invest more outside the country that may yield them more money. If this happens there will be lesser chances of economic growth because the currency value of the nation has been driven down. As a result, analysts may have a gloomier outlook for the economy.

Interestingly, before any investor can invest in the country one has to note that those foreign businessmen are affected as well by changes in the interest rates. To offset any dire economic scenario, the government usually intervenes to adjust the values of its currency, so it may spark life in the currency market, so it may become more active than before. Trading will gradually normalize if economic conditions will improve and if government intervention will be able to adjust the interest rates.

Article Source: http://EzineArticles.com/6575977

Click here for reuse options!
Copyright 2015 What is the Forex Market